Capital Gains Tax up to 40%!

Pennywise

dealsearcher wrote: »

Getting back to the thread title ....

I would say that the government should really introduce a 40% CGT with a taper relief arrangement. A straight increase to 40% would put too much of a shock into the system. People who have owned property for some years under different CGT rules could be placed in considerable difficulty with such a sudden change in the system. People who buy to let subsequent to any increase in CGT rate will know what they are getting in to. People who have bought before can not be expected to have forecast such a change.

What's right to do and what actually happens are two completely different things. When labour scrapped retirement relief and introduced taper relief, a lot of businesses "had to" be sold quickly otherwise their proprietors, who'd been looking forward to relatively low, if any, tax after decades of hard work, would have been landed with huge tax bills threatening their retirement. Same when taper relief was abolished - very little notice and could have badly affected a lot of people despite the reduction in headline rate down to 18%. Luckily, common sense prevailed and they cobbled together entreprenneurs relief to mitigate the damage.

Mt personal view is that regardless of what you invest in (i.e. shares, property, a business, etc)., you should pay at least the same tax as you would if you were earning the money "working". The "workers" are always the first in line for tax increases when times are hard and it's not fair or just.

At the very least, we need to go back the paying CGT at either basic or higher rate percentages according to the amounts. Even better would be a complete change so that capital gains were added to other taxable income and taxed in the same way as wages or other taxable income, i.e. first £10k tax free, then 20% then 40% then 50%. Scrap the annual exemption and regard the newly proposed £10k personal allowance as covering both income tax and CGT. Keep the principal private residence relief. Scrap the lettings relief (there's no logic behind it - you already get relief for years lived in and final 3 years anyway). Then bring in some form of "over time" reduction in the gain to reduce the gain depending on length of ownership - a sort of cross between taper relief and indexation relief. Capital losses should also be freely available to set against other taxable income, so if eg you lost a shed load on shares you could claim some or all of the tax you had deducted from your wages in that year.

I really don't see why there should be any "special cases" at all, whether they be businesses, BTLs, or whatever. If someone has been lucky enough to make a shed load of cash from whatever type of "asset" then paying upto half of the gain as tax isn't unreasonable. My opinion is simply because someone working damned hard is taxed at upto 50% and they're jeopardising their health, family relationships, etc, not to mention reducing time available for recreation. Why should a hard worker pay a higher proportion in tax than someone who's been lucky with their investments?

At the end of the day, if person A makes a million in a year doing one activity, and person B makes a million doing something different, they should be paying the same tax. The idea of risks and rewards of investment decisions should only ever be based on likely direct gains and losses, not on the tax side of things which brings in artificial logic. There shouldn't be the question of doing something differently to pay less tax.

The way I'd like to see it would also have another beneficial side effect of helping towards tax simplification.

Thrugelmir

IveSeenTheLight wrote: »

If (and it's a very big if) that were to happen, then there would be a huge likelyhoods of BTL leaving the market.

Who then provides the level of rental accomodation required?

It seems crazy to tax purely on income without considering expenses incurred in running that business. The only likelyhood in that scenario is more and more BTL businesses do not fit into the BTL model

Why? Property investment isn't new. Those with capital have invested in residential property for years and will continue to do so.

Changes would merely flush out those looking to make a quick profit. Certainly those that have little to no interest in providing long term secure accomodation for those that wish to rent.

BTL is not a business if it relies on tax breaks to be successful.

Thrugelmir

Pennywise wrote: »

What's right to do and what actually happens are two completely different things. When labour scrapped retirement relief and introduced taper relief, a lot of businesses "had to" be sold quickly otherwise their proprietors, who'd been looking forward to relatively low, if any, tax after decades of hard work, would have been landed with huge tax bills threatening their retirement. Same when taper relief was abolished - very little notice and could have badly affected a lot of people despite the reduction in headline rate down to 18%. Luckily, common sense prevailed and they cobbled together entreprenneurs relief to mitigate the damage.

Mt personal view is that regardless of what you invest in (i.e. shares, property, a business, etc)., you should pay at least the same tax as you would if you were earning the money "working". The "workers" are always the first in line for tax increases when times are hard and it's not fair or just.

At the very least, we need to go back the paying CGT at either basic or higher rate percentages according to the amounts. Even better would be a complete change so that capital gains were added to other taxable income and taxed in the same way as wages or other taxable income, i.e. first £10k tax free, then 20% then 40% then 50%. Scrap the annual exemption and regard the newly proposed £10k personal allowance as covering both income tax and CGT. Keep the principal private residence relief. Scrap the lettings relief (there's no logic behind it - you already get relief for years lived in and final 3 years anyway). Then bring in some form of "over time" reduction in the gain to reduce the gain depending on length of ownership - a sort of cross between taper relief and indexation relief. Capital losses should also be freely available to set against other taxable income, so if eg you lost a shed load on shares you could claim some or all of the tax you had deducted from your wages in that year.

I really don't see why there should be any "special cases" at all, whether they be businesses, BTLs, or whatever. If someone has been lucky enough to make a shed load of cash from whatever type of "asset" then paying upto half of the gain as tax isn't unreasonable. My opinion is simply because someone working damned hard is taxed at upto 50% and they're jeopardising their health, family relationships, etc, not to mention reducing time available for recreation. Why should a hard worker pay a higher proportion in tax than someone who's been lucky with their investments?

At the end of the day, if person A makes a million in a year doing one activity, and person B makes a million doing something different, they should be paying the same tax. The idea of risks and rewards of investment decisions should only ever be based on likely direct gains and losses, not on the tax side of things which brings in artificial logic. There shouldn't be the question of doing something differently to pay less tax.

The way I'd like to see it would also have another beneficial side effect of helping towards tax simplification.

Great post. I wonder if these concepts will be thrashed out over the coming years.

Blacklight

IveSeenTheLight wrote: »

Where do you see a £40k allowance.
Current CGT allowance is only £10,100 per person so £20,200 if jointly owned

http://www.hmrc.gov.uk/rates/cgt.htm#2

Private Letting Relief

If a property is jointly owned and has been let out and also lived in then both owners can each claim Private Letting Relief up to a maximum of £40,000.

Not sure if this is in addition to the £10k allowance you get or not. It's all new to me. Interesting though.

kennyboy66_2

Pennywise wrote: »

Mt personal view is that regardless of what you invest in (i.e. shares, property, a business, etc)., you should pay at least the same tax as you would if you were earning the money "working". The "workers" are always the first in line for tax increases when times are hard and it's not fair or just.

.

Your whole piece sums it up very elequently.

How did we get to situation where a Labour government (a Labour government!), taxes hard work more than speculation and spivvery.

Not quite what was envisaged when the symbolic clause 4 was abandoned.

Blacklight

Pennywise wrote: »

Even better would be a complete change so that capital gains were added to other taxable income and taxed in the same way as wages or other taxable income, i.e. first £10k tax free, then 20% then 40% then 50%.

One issue with this is that capital gains are usually made over time so you're taxing someone for something at a single point in time for appreciation over a long period.

You can't treat that simply like income tax.

If I worked doing a job for ten years at £5k a year but deffered all payments until the end of that period you'd tax me like I just earned £50k, whereas spread over ten years I'd pay no tax at all.

Hardly fair or just.

chucknorris

Blacklight wrote: »

Private Letting Relief

If a property is jointly owned and has been let out and also lived in then both owners can each claim Private Letting Relief up to a maximum of £40,000.

Not sure if this is in addition to the £10k allowance you get or not. It's all new to me. Interesting though.

It is in addition, I sold a house in 2003 that had both been my main residence for a few years and let out for 9-10 years, so I have been through the process already and claimed both.

Thrugelmir

Blacklight wrote: »

One issue with this is that capital gains are usually made over time so you're taxing someone for something at a single point in time for appreciation over a long period.

You can't treat that simply like income tax.

If I worked doing a job for ten years at £5k a year but deffered all payments until the end of that period you'd tax me like I just earned £50k, whereas spread over ten years I'd pay no tax at all.

Hardly fair or just.

Expecting people to live on the streets and beg for 10 years to get by is hardly fair.

The fact that CGT is not paid until the asset is sold. Means that the asset can continue to grow tax free over that time frame enhancing the return.

StevieJ

Pennywise wrote: »

.

Mt personal view is that regardless of what you invest in (i.e. shares, property, a business, etc)., you should pay at least the same tax as you would if you were earning the money "working". The "workers" are always the first in line for tax increases when times are hard and it's not fair or just.
.

That is fine and even handed if the Govt indemnify the tax payer against any losses suffered

IveSeenTheLight

Thrugelmir wrote: »

BTL is not a business if it relies on tax breaks to be successful.

Man Utd have a loan and the costs of servicing that loan is deducted before announcing profits or losses.

It's the same with BTL.
Loan interest is a cost which should get deducted before the business declares the yearly figures.

Both are businesses and expenditure should be deducted from income before declaring if the business is profitable or not.